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UNIVERSITY OF MISSOURI HEALTH CARE

Financial Statements

June 30, 2014 and 2013

(With Independent Auditors’ Report Thereon)


Table of Contents

Page(s)

Independent Auditors’ Report 1–2

Management’s Discussion and Analysis (Unaudited) 3–9

Financial Statements:

Statements of Net Position as of June 30, 2014 and 2013 10–11

Statements of Revenues, Expenses, and Changes in Net Position for the years ended June 30, 2014 and 2013 12

Statements of Cash Flows for the years ended June 30, 2014 and 2013 13–14

Notes to Financial Statements 15–36

KPMG LLP Suite 900 10 South Broadway St. Louis, MO 63102-1761

KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative (“KPMG International”), a Swiss entity.

Independent Auditors’ Report

The Board of Curators University of Missouri:

Report on the Financial Statements

We have audited the accompanying financial statements of University of Missouri Health Care (MU Health Care) which comprise the statements of net position as of June 30, 2014 and 2013, and the related statements of revenues, expenses, and changes in net position, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MU Health Care as of June 30, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

Emphasis of Matter

As discussed in note 1, the financial statements of MU Health Care are intended to present the net position, statements of revenues, expenses, and changes in net position, and cash flows of only that portion of the business-type activities of the University of Missouri (the University) that is attributable to the transactions of MU Health Care. They do not purport to, and do not, present fairly the financial position of the University as of June 30, 2014 and 2013, the changes in its financial position or its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

As discussed in note 1, effective July 1, 2013, MU Health Care implemented Government Accounting Standards Board (GASB) No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter.

Other Matters

Required Supplementary Information

U.S. generally accepted accounting principles require that the management’s discussion and analysis on pages 3-9 be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated October 10, 2014, on our consideration of MU Health Care’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering MU Health Care’s internal control over financial reporting and compliance.

St. Louis, Missouri October 10, 2014

2


Management’s Discussion and Analysis

June 30, 2014 and 2013

(Unaudited)

University of Missouri Health Care

The University of Missouri (the University) owns and operates University of Missouri Health Care (MU Health Care), which is comprised of University of Missouri Hospitals and Clinics (UMHC, includes University of Missouri Hospital, Ellis Fischel Cancer Center, Missouri Psychiatric Center, and Missouri Orthopedic Institute); Missouri Rehabilitation Center (MRC); and Women’s and Children’s Hospital (WCH).

UMHC and WCH are the primary teaching hospitals for the University of Missouri-Columbia School of Medicine, the Sinclair School of Nursing, and the School of Health Professions. All of the facilities and the operations of the MU Health Care are under the control of the University.

Accounting and Financial Reporting

This report consists of three financial statements: (1) Statements of Net Position, (2) Statements of Revenues, Expenses, and Changes in Net Position, and (3) Statements of Cash Flows, and the related notes to the financial statements. These statements provide information on MU Health Care as a whole and present a view of its finances. The statements include all accounts of MU Health Care and are based on the accrual basis of accounting.

Statements of Net Position Information

MU Health Care’s Statements of Net Position present the financial position of MU Health Care as of a fiscal year-end. These statements present the assets, liabilities, and net position of MU Health Care.

3 (Continued)



June 30, 2014 and 2013

(Unaudited)

A summary of the Statements of Net Position at June 30, 2014, 2013, and 2012 is as follows (dollars in thousands):

Fiscal year2014 2013 2012

Assets:Current assets $ 178,831 $ 187,783 $ 225,207 Other noncurrent assets 315,583 270,604 283,654 Capital assets 521,567 520,514 455,727

Total assets $ 1,015,981 $ 978,901 $ 964,588

Liabilities:Current liabilities $ 77,459 $ 66,204 $ 81,699 Noncurrent liabilities 360,924 371,934 381,967

Total liabilities 438,383 438,138 463,666

Net position:Net investment in capital assets 217,393 221,680 152,586 Restricted 7,473 8,047 7,326 Unrestricted 352,732 311,036 341,010

Total net position 577,598 540,763 500,922 Total liabilities and net position $ 1,015,981 $ 978,901 $ 964,588

Fiscal Year 2014 Compared to Fiscal Year 2013

Total assets increased $37.0 million from $979.0 million in fiscal year 2013 to $1,016.0 million in fiscal year 2014. Cash, cash equivalents, and investments increased $28.6 million as a result of positive investment returns and increased cash flow on patient revenues. As MU Health Care continues to invest in capital additions and improvements throughout its facilities, capital assets, net of accumulated depreciation, increased by $1.1 million from $520.5 million in fiscal year 2013 to $521.6 million in fiscal year 2014. These investments in MU Health Care’s infrastructure include, but are not limited to, $9.1 million in renovations, $16.0 million in new building construction, and $30.0 million on patient monitoring and diagnostic equipment. These additions are offset by a one-time facility transfer of $25.2 million in building and land, net of $20.1 million in accumulated depreciation to the University of Missouri – Columbia, for space which was transitioned from patient care to classrooms.

Current liabilities increased by $11.3 million from $66.2 million in fiscal year 2013 to $77.5 million in fiscal year 2014. The increase is primarily due to additional payables associated with the construction of a new outpatient facility, and estimated third party settlements. Long term liabilities decreased $11.0 million through the payment of long-term debt liabilities.

For fiscal year 2014, MU Health Care’s total net position is $577.6 million, which represents an increase of $36.8 million over fiscal year 2013 level of $540.8 million.

4 (Continued)



June 30, 2014 and 2013

(Unaudited)


Total assets increased $14.3 million from $964.6 million in fiscal year 2012 to $978.9 million in fiscal year 2013. Cash, cash equivalents, and investments decreased $27.0 million due to the use of prior year bond proceeds and cash reserves for the construction of the new Patient Care Tower. As MU Health Care continues to invest in capital additions and improvements throughout its facilities, capital assets, net of accumulated depreciation, increased by $64.8 million from $455.7 million in fiscal year 2012 to $520.5 million in fiscal year 2013. These investments in MU Health Care’s infrastructure include, but are not limited to, $16.5 million in renovations, $48.8 million in new building construction, and $41.2 million on patient monitoring and diagnostic equipment.

Total liabilities decreased by $25.6 million from $463.7 million in fiscal year 2012 to $438.1 million in fiscal year 2013. This decrease is primarily due to the payment of $10.9 million on long-term debt liabilities, and the resolution of $15.3 million in payments to individual residents and medical care entities for medical resident FICA refunds. MU Health Care received $31.5 million in refunds and interest from the Internal Revenue Service during fiscal year 2013, a portion of which had been recognized as income or expense reduction in prior years.

For fiscal year 2013, MU Health Care’s total net position is $540.7 million, which represents an increase of $39.8 million over fiscal year 2012 level of $500.9 million.

5 (Continued)



June 30, 2014 and 2013

(Unaudited)

Statements of Revenues, Expenses, and Changes in Net Position Information

MU Health Care’s Statements of Revenues, Expenses, and Changes in Net Position present the results of operations and nonoperating activities. A summary of these statements for the years ended June 30, 2014, 2013, and 2012 is as follows (dollars in thousands):


Net patient service revenues $ 712,342 $ 684,621 $ 639,180 Other operating revenues 21,323 21,497 17,861

Total operating revenues 733,665 706,118 657,041

Operating expenses:Salaries and benefits 314,250 312,398 306,354 Medical supplies and drugs 159,945 140,750 135,149 Administrative and support services 57,467 56,155 54,288 Depreciation 49,432 41,446 35,391 Other expenses 124,192 121,560 109,311

Total operating expenses 705,286 672,309 640,493

Operating income before Stateappropriations 28,379 33,809 16,548

State appropriations 10,028 10,028 10,028

Income after State appropriations,before nonoperating revenues, net 38,407 43,837 26,576

Interest expense, net of capitalized interestof $929 and $4,837 in 2014 and 2013, respectively (13,506) (9,753) (8,427)

Other nonoperating revenues, net 16,969 10,951 6,580

Total nonoperating revenues, net 3,463 1,198 (1,847)

Income before capital additions,contributions, and transfers 41,870 45,035 24,729

Contributed capital assets and endowment gifts 1,197 3,192 5,111 Transfers, net (6,232) (8,386) (2,998)

Change in net position 36,835 39,841 26,842

Total net position, beginning of year 540,763 500,922 474,080 Total net position, end of year $ 577,598 $ 540,763 $ 500,922

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June 30, 2014 and 2013

(Unaudited)


For fiscal year 2014, MU Health Care had an increase in net position of $36.8 million compared to $39.8 million for fiscal year 2013. Operating revenues in fiscal year 2014 were $27.5 million greater than prior year and represents a 3.9% increase. The following table provides a summary of the key statistics for fiscal years 2014, 2013, and 2012.

Key statisticsFiscal year

2014 2013 2012

Discharges 24,963 24,028 22,203 Patient days 130,045 126,142 120,985 Clinic visits 564,113 568,675 553,300 Emergency room visits 59,022 54,375 51,632 Surgery cases 22,946 23,135 22,774

In fiscal year 2014, MU Health Care continued to experience growth in inpatient areas. Discharges increased 935, or 3.9%, over fiscal year 2013, and patient days increased 3,903, or 3.1%. Other areas saw varying results as clinic visits had a slight decline at 0.8%, yet emergency room visits, a primary access point for inpatient services grew by 4,647 visits, or 8.5%, over fiscal year 2013.

In fiscal year 2014, operating expenses were $33.0 million higher than the prior year, which represents a 4.9% increase. Medical supplies and drugs increased $19.2 million, or 13.6% over prior year as a result of increased utilization, as well as higher drug costs from changes to MU Health Care’s management of its 340b drug pricing program.

Depreciation expense saw a $8.0 million increase as a result of the new patient care tower being fully operational for the year and $2.2 million in accelerated depreciation due to the impairment of the inpatient units at the MRC location. University provided utility costs also increased by $2.0 million, as a result of the patient care tower, and is the primary cause of the $2.6 million increase in other expenses.


For fiscal year 2013, MU Health Care had an increase in net position of $39.8 million compared to $26.8 million for fiscal year 2012. Operating revenues in fiscal year 2013 were $49.0 million greater than prior year and represents a 7.5% increase.

In fiscal year 2013, MU Health Care continued to experience growth in both inpatient and outpatient areas. Discharges increased 1,825, or 8.2%, over fiscal year 2012, and patient days increased 5,157, or 4.3%. Clinic visits increased by 15,375, or 2.8%, and emergency room visits grew by 2,743, or 5.3%, over fiscal year 2012.

In fiscal year 2013, operating expenses were $31.8 million higher than the prior year, which represents a 5.0% increase. Salary and benefit expense increased by $6.0 million, or 2.0%, as a result of an average 2.4% merit

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June 30, 2014 and 2013

(Unaudited)

increase, and market adjustments given in fiscal year 2013. Medical supplies and drugs increased $5.6 million, or 4.1%, over prior year as a direct result of increased utilization.

In March 2013, MU Health Care opened a new 310,500 square foot, eight-story patient care tower on the northeast side of the University of Missouri Hospital. The building includes 90 private patient rooms, six new operating rooms, an inpatient pharmacy, and pre- and post-procedure rooms, as well as two floors dedicated to the Ellis Fischel Cancer Center. Increases in depreciation expense and other expenses are a direct reflection of the opening of the facility. Other expenses include over $6.5 million in startup costs and utility expenses for the new building.

Statements of Cash Flows

MU Health Care’s Statements of Cash Flows provide the sources and uses of cash resources. The cash flow statements for the years ended June 30, 2014, 2013, and 2012 are summarized as follows (dollars in thousands):


Cash provided by (used in):Operating activities $ 77,760 $ 82,796 $ 34,576 Noncapital financing activities 5,398 2,979 8,200 Capital and related financing activities (69,995) (125,593) (135,058) Investing activities (26,348) 13,369 101,839

Net change in cash and cashequivalents (13,185) (26,449) 9,557

Cash and cash equivalents, beginning of year 29,309 55,758 46,201 Cash and cash equivalents, end of year $ 16,124 $ 29,309 $ 55,758


During fiscal year 2014, MU Health Care’s cash decreased by $13.2 million as compared to a $26.4 million decrease in fiscal year 2013. For fiscal year 2014, operating activities generated $77.8 million, primarily through increased revenues as a result of increased utilizations in inpatient areas. These funds were utilized to purchase routine capital expenditures in patient care areas. For noncapital financing activities in fiscal year 2014, MU Health Care had an increase in cash of $5.4 million. Capital and related financing activities resulted in $70.0 million decrease in cash primarily due to spending on a new outpatient clinic. Investing activities decreased cash by $26.3 million principally due to an increase in long-term investment holdings by the University and earnings on the investments during fiscal year 2014.

8 (Continued)



June 30, 2014 and 2013

(Unaudited)


During fiscal year 2013, MU Health Care’s cash decreased by $26.4 million as compared to a $9.6 million increase in fiscal year 2012. For fiscal year 2013, operating activities generated $82.8 million, primarily through increased revenues as a result of increased utilizations in both the inpatient and outpatient areas. These funds were utilized to purchase routine capital expenditures in patient care areas. For noncapital financing activities in fiscal year 2013, MU Health Care had an increase in cash of $3.0 million. Capital and related financing activities resulted in $125.6 million decrease in cash primarily due to spending on a new patient tower and other outpatient facilities. Investing activities increased cash by $13.4 million principally due to an increase in long-term investment holdings by the University and earnings on the investments during fiscal year 2013.

MU Health Care Outlook

As in the prior years, MU Health Care maintains a focus on advancing the health of Missourians through improved patient care, customer service and quality. Physician recruitment, medical resident education, patient satisfaction, and core service lines remain a focus for MU Health Care.

State appropriation funding for fiscal year 2015 has been reduced to $5.0 million for six months of support for the operations of the Missouri Rehabilitation Center. University of Missouri Health Care announced the closure of its long-term acute care facility, Missouri Rehabilitation Center (MRC), in Mount Vernon, Missouri. Inpatient services will continue through October 31, 2014, with certain outpatient services continuing through December 31, 2014.

MU Health Care continues to pursue volume growth to support its academic, research, and clinical missions. During 2015, MU Health Care will open a new 84,000 square foot outpatient facility in Columbia. Ongoing capital investments assist in providing quality care to patients, including enhanced facilities for physician, medical resident education, and recruitments with the University of Missouri-Columbia School of Medicine. Also during 2015, MU Health Care will begin construction on a four-story expansion of the orthopedic facility, with extensive focus on research and innovation.

MU Health Care continually monitors the changing environment surrounding State and Federal health care programs and the corresponding legislation, including the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, collectively referred to as “Health Care Reform.” This legislation has significantly impacted the future of healthcare. MU Health Care continues to review the effects this and other legislation will have on the organization. One outcome of these changes includes the collaboration with the University of Missouri System to provide new enhanced health benefits to their employees during FY 2015.

9


Statements of Net Position

June 30, 2014 and 2013

(Dollars in thousands)

Assets 2014 2013

Current assets:Cash and cash equivalents $ 14,672 $ 24,286 Cash and cash equivalents – restricted 1,452 5,023 Short-term investments 32,063 32,335 Short-term investments – restricted 3,392 7,011 Patient accounts receivable, less allowance for doubtful accounts

of $15,081 and $15,705 in 2014 and 2013, respectively 83,289 73,673 Third-party and other receivables 20,612 23,382 Inventories and other assets 23,351 22,073

Total current assets 178,831 187,783

Noncurrent assets:Long-term investments 298,545 247,395 Long-term investments – restricted 13,708 19,155 Capital assets:

Depreciable 487,705 505,059 Nondepreciable 33,861 15,455

Other assets 3,331 4,054

Total noncurrent assets 837,150 791,118

Total assets $ 1,015,981 $ 978,901

See accompanying notes to financial statements.

10

Liabilities 2014 2013

Current liabilities:Accounts payable $ 25,864 $ 21,219 Estimated third-party payor settlements 11,575 5,036 Accrued employee compensation 29,617 30,233 Capital lease obligations, current 820 755 Long-term debt obligations, current 9,583 8,961

Total current liabilities 77,459 66,204

Noncurrent liabilities:Amount due University 55,000 55,000 Capital lease – less current portion 4,344 5,164 Long-term debt obligations – less current portion 301,580 311,770

Total noncurrent liabilities 360,924 371,934

Total liabilities 438,383 438,138

Net Position

Net investment in capital assets 217,393 221,680 Restricted:

Nonexpendable:Endowment 678 630

Expendable:Research and other 6,795 7,417

Unrestricted 352,732 311,036

Total net position 577,598 540,763 Total liabilities and net position $ 1,015,981 $ 978,901

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Statements of Revenues, Expenses, and Changes in Net Position

Years ended June 30, 2014 and 2013


2014 2013

Operating revenues:Net patient service revenues $ 712,342 $ 684,621 Sales by auxiliary enterprises and other 21,323 21,497

Total operating revenues 733,665 706,118

Operating expenses:Salaries and benefits 314,250 312,398 Medical supplies and drugs 159,945 140,750 Administrative and support services 57,467 56,155 Depreciation 49,432 41,446 Other expenses 124,192 121,560

Total operating expenses 705,286 672,309

Operating income before State appropriations 28,379 33,809

State appropriations 10,028 10,028

Income after State appropriations, before nonoperatingrevenues (expenses) 38,407 43,837

Nonoperating revenues (expenses):Investment income 15,464 9,900 Private gifts 1,728 1,174 Interest expense, net of amounts capitalized of $929 and $4,837

in 2014 and 2013, respectively (13,506) (9,753) Gain (loss) on disposal, net (223) (123)

Total nonoperating revenues, net 3,463 1,198

Income before capital additions, contributions, andtransfers 41,870 45,035

Contributed capital assets 1,104 3,003 Capital and endowment gifts 93 189

Income before transfers 43,067 48,227

Transfers to the University, net (6,232) (8,386)

Change in net position 36,835 39,841

Total net position, beginning of year 540,763 500,922 Total net position, end of year $ 577,598 $ 540,763


12





2014 2013

Cash flows from operating activities:Cash proceeds from patient service revenue $ 711,984 $ 681,406 Cash proceeds from other sales 21,130 21,507 Cash payments to employees (236,820) (235,944) Cash payments for benefits (78,031) (66,566) Cash payments to suppliers (340,503) (317,607)

Net cash provided by operating activities 77,760 82,796

Cash flows from noncapital financing activities:Transfers to the University, net (6,232) (8,359) State appropriations 10,028 10,028 Private and endowment gifts 1,602 1,310

Net cash provided by noncapital financing activities 5,398 2,979

Cash flows from capital and related financing activities:Capital expenditures (45,995) (99,600) Cash proceeds from sales of capital assets (223) 149 Capital gifts 93 135 Principal payments on long-term debt (8,961) (10,931) Capital lease principal payments (755) (696) Interest paid on long-term debt (14,154) (14,650)

Net cash used in capital and related financing activities (69,995) (125,593)

Cash flows from investing activities:Increase (decrease) in investments (41,812) 508 Purchase of Excel Physical Therapy — (110) Investment income 15,464 12,971

Net cash provided by (used in) investing activities (26,348) 13,369

Net change in cash and cash equivalents (13,185) (26,449)

Cash and cash equivalents, beginning of year 29,309 55,758 Cash and cash equivalents, end of year $ 16,124 $ 29,309

(Continued)13





2014 2013

Reconciliation of operating income to net cash provided by operatingactivities:

Operating income $ 28,379 $ 33,809 Adjustments to reconcile operating income to net cash

provided by operating activities:Depreciation 49,432 41,446 Provision for bad debts 71,606 65,496 Changes in assets and liabilities:

Net patient receivables and third-party receivable (71,870) (47,137) Inventories and other assets (1,359) (828) Accounts payable and accrued expenses 1,572 (9,990)

Net cash provided by operating activities $ 77,760 $ 82,796

Supplemental disclosures of noncash activities:Contributed capital assets $ 1,104 $ 3,003 Net increase (decrease) in fair value of investments 12,919 (2,725)


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Notes to Financial Statements

June 30, 2014 and 2013


(1) Summary of Significant Accounting Policies

(a) Nature of Organization

University of Missouri Health Care is a part of the University of Missouri (the University). As a component unit of the State of Missouri, the University is generally exempt from federal income tax under Section 115 of the Internal Revenue Code.

University of Missouri Health Care (MU Health Care) consists of the University of Missouri Hospital and Clinics (UMHC), a tertiary referral center located in Columbia, Missouri, comprised of University Hospital, Ellis Fischel Cancer Center, Missouri Psychiatric Center, and Missouri Orthopedic Institute; Women’s and Children’s Hospital (WCH), and Missouri Rehabilitation Center (MRC) in Mt. Vernon, Missouri. See note 12 regarding closure and sale of the MRC facility.

(b) Basis of Accounting

MU Health Care follows all applicable GASB pronouncements.

Pursuant to GASB Statement No. 35, Basic Financial Statement – and Management’s Discussion and Analysis – for Public Colleges and Universities, MU Health Care’s activities are considered to be a single business-type activity and accordingly, are reported in a single column in the financial statements. Business-type activities are those that are financed in whole or part by funds received by external parties for goods or services.

MU Health Care’s statements have been prepared using the economic resource measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned and expenses are recorded when an obligation has been incurred, regardless of the timing of cash flows.

On the Statements of Revenues, Expenses, and Changes in Net Position, MU Health Care defines operating activities as those generally resulting from an exchange transaction. Nearly all of MU Health Care’s expenses are from exchange transactions, which involve the exchange of equivalent values such as payments for goods or services. Nonoperating revenues or expenses are those in which the MU Health Care receives or gives value without directly giving or receiving equal value, such as State appropriations, private gifts, and investment income.

MU Health Care’s resources are classified for accounting and reporting purposes into the following four net position categories:

Net investment in capital assets – Capital assets, net of accumulated depreciation and outstanding principal debt balances attributable to the acquisition, construction, or improvement of those assets.

Restricted – Nonexpendable – Net position subject to externally imposed constraints that must be maintained permanently by MU Health Care. Such net position includes MU Health Care’s permanent endowment funds.

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June 30, 2014 and 2013


Restricted – Expendable – Net position whose use by MU Health Care is subject to externally imposed constraints that can be fulfilled by actions of MU Health Care pursuant to those stipulations or that expire by the passage of time. MU Health Care’s policy is to utilize specifically restricted net position funds prior to unrestricted net position funds when both are available for use.

Unrestricted – Net position that is not subject to externally imposed constraints nor related to capital assets. Unrestricted net position funds may be designated for specific purposes by action of management or the Board of Curators (the Board).

(c) Cash and Cash Equivalents

MU Health Care participates in the University’s pooled cash accounts. Cash and cash equivalents consists of the University’s bank deposits, repurchase agreements, money market funds, and other investments with original purchased maturities of three months or less. Cash equivalents may also include variable rate demand notes, which are debt securities with an original maturity beyond three months, but with a demand feature that allows for liquidity with advance notice of no more seven days. As of June 30, 2014 and 2013, the University did not hold any variable rate demand notes. All of MU Health Care’s cash and cash equivalents are included in the University’s pooled funds. These assets are stated at fair value. Restricted cash is included in cash and cash equivalents on the accompanying Statements of Cash Flows.

(d) Inventories

Inventories, consisting primarily of drugs and medical supplies, are stated at the lower of cost (determined using the first-in, first-out method) or market.

(e) Investments

MU Health Care participates in the University’s pooled investment accounts, which primarily include allocations of U.S. and foreign government agency obligations, corporate debt securities, with smaller allocations of other investments including corporate stocks, private equities, real estate, and absolute return and risk parity funds. Debt securities with a maturity less than one year are classified as short-term investments. Beginning in July 2010, the University established a structured investment program that provides a guaranteed return on designated investments. The guaranteed return was 1% for the year ended June 30, 2014 and 1.5% for the year ended June 30, 2013. As of June 30, 2014, 66.1% of MU Health Care’s pooled investments were maintained in these designated investments. The remaining MU Health Care investments are held in equity fund-type pools and absolute return and risk parity funds, which continue to reflect actual earnings and market fluctuations.

(f) Capital Assets

These capital assets are carried, if purchased, at cost or, if donated, at fair value at date of gift. Depreciation expense is computed using the straight-line method over the estimated useful lives of the respective assets – generally 10 to 40 years for buildings and improvements, 8 to 25 years for

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June 30, 2014 and 2013


infrastructure, and 3 to 15 years for equipment. Land is not depreciated. Net interest expense incurred during the construction of debt-financed facilities is generally included in the capitalization of the related facilities. Capitalized interest of $929 and $4,837 has been recorded for the years ended June 30, 2014 and 2013, respectively.

(g) Net Patient Service Revenues

MU Health Care has agreements with third-party payors that provide for payments at amounts different from established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discount charges, and per diem payments. Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as estimates are refined and final settlements are determined. Net patient service revenue is also shown net of estimated uncollectible accounts.

Amounts receivable under Medicare and Tricare/Champus reimbursement agreements are subject to examination and certain retroactive adjustments by the related programs. These adjustments increased net patient services revenues by $621 and $934 for the years ended June 30, 2014 and 2013, respectively.

The MU Health Care Medicare cost report has been settled through June 30, 2011; MRC Medicare reports have been settled through June 30, 2012. The Medicaid program reimburses inpatient services on a prospective established per diem rate. The Medicaid program reimburses outpatient services under a combination of prospective and fee schedule amounts.

A percentage breakdown of gross patient accounts receivable by major payor classification of MU Health Care for the years ended June 30, 2014 and 2013 is as follows:

2014 2013

Medicare 30% 28%Managed care agreements 23 23Medicaid 19 23Self-pay and other 17 18Commercial insurance 11 8

Total 100% 100%

Patient services revenue includes the State of Missouri Federal Reimbursement Allowance Program (FRA Program) for uncompensated care, as part of the MoHealthNet program. MU Health Care recognizes FRA Program revenue in the period earned.

The gross to net patient revenue detail is reflected below for both 2014 and 2013. Only net patient revenue is reflected on the Statements of Revenues, Expenses, and Changes in Net Position.

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June 30, 2014 and 2013


2014 2013

Gross patient revenue $ 1,875,763 $ 1,761,245 Less:

Deductions for contractual allowances (1,091,815) (1,011,128) Deductions for bad debt allowances (71,606) (65,496)

Net patient revenues $ 712,342 $ 684,621

(h) Uncompensated Care

In line with its mission, MU Health Care provides some services to patients without regard to their ability to pay for those services. For some of its patient services, MU Health Care system receives no payment or payment that is less than the full cost of providing the services. The following are descriptions of uncompensated care:

Charity Care – MU Health Care provides care to patients who meet certain criteria under its charity care policy without charge or at amounts less than its established rates. Because MU Health Care does not pursue collection of amounts determined to qualify as charity care, they are not reported as gross patient revenues.

Unreimbursed Cost under State and Local Government Assistance Programs – MU Health Care provides services to other patients under certain state and local government assistance programs, which pay providers amounts generally less than the cost of rendering the services. These cost amounts have been reduced by all payments received on these accounts, including amounts received from the FRA Program.

The FRA Program, approved by the Centers for Medicare and Medicaid Services, relies on federal regulations that permit states to include qualifying expenditures made by or on behalf of states serving Medicaid eligible or uninsured patients as the state’s share of Medicaid payments. The FRA Program is part of the State of Missouri Medicaid Program, which is named MoHealthNet. Under the MoHealthNet Programs, MU Health Care receives payments for claims based upon historical cost amounts and supplemental payments under the FRA Program. Under the FRA Program, MU Health Care received payments of $79,629 and $85,941, and paid provider taxes of $37,359 and $36,529 in fiscal years 2014 and 2013, respectively. Payments under the State’s Medicaid Program, including patient claims, Medicaid direct, and disproportionate share payments (DSH), are subject to retrospective determination of actual costs once MU Health Care Medicare Cost Reports are audited.

Uncollectible Accounts – Services provided to certain patients of MU Health Care, who do not either apply for or qualify for charity care, are uncollectible.

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The estimated cost of services provided by MU Health Care for charity care, estimated unreimbursed costs of providing services to state and local government assistance programs, and uncollectible accounts, for the years ended June 30, 2014 and 2013 are as follows:

2014 2013

Cost of charity care $ 17,442 $ 15,584 Unreimbursed cost under state and local government

assistance programs, net of Medicaid disproportionateshare funding, less Medicaid provider taxes 3,820 (5,077)

Cost of uncollectible accounts 21,906 21,132 Total $ 43,168 $ 31,639

(i) Appropriations and Private Gifts

The State provides direct appropriations to the MU Health Care, for MRC, which totaled $10,028 and $10,028 for the years ended June 30, 2014 and 2013, respectively.

MU Health Care recognizes gifts in the period when all eligibility requirements are met. For recognition purposes, GASB defines eligibility requirements. MU Health Care received expendable gifts in 2014 and 2013 of $1,728 and $1,174, respectively. MU Health Care also received gifts for capital assets and endowments in 2014 and 2013 of $1,197 and $3,192, respectively. Refer to note 1(j) for further discussion.

MU Health Care receives unconditional promises to give through private donations (pledges). The total pledges receivable as of June 30, 2014 and 2013 were $170 and $52, net of $16 and $8, in allowance for uncollectible pledges, respectively. Pledges receivable current and long-term have been recorded within third-party and other receivables and other assets, respectively, in the Statements of Net Position and as private gift revenues on the Statements of Revenues, Expenses, and Changes in Net Position, at the present value of the estimated future cash flows. An allowance has been made for uncollectible accounts based upon management’s expectations regarding the collection of the pledges.

(j) Contributed Capital Assets MU Health Care Maintains

MU Health Care maintains a cooperative relationship with the Cerner Corporation (Cerner) referred to as the Tiger Institute for Health Innovation (the Tiger Institute). Cerner, through the Tiger Institute, is the principal provider of information technology services for MU Health Care as well as developing new technology initiatives in health information systems within the clinical areas. Under the Tiger Institute agreements, MU Health Care received contributed capital assets of information technology systems in the amount of $1,104 in fiscal year 2014 and $3,003 in fiscal year 2013.

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(k) Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(l) New Accounting Pronouncements

Effective for fiscal year 2014, the University and MU Health Care Adopted GASB Statement No. 65 Items Previously Reported as Assets and Liabilities, which intends to improve financial reporting by clarifying the appropriate use of the financial statement elements deferred outflows of resources and deferred inflows of resources to ensure consistency in financial reports. In adopting this standard, MU Health Care recognized the effect of a change in accounting principle, which decreased net position by $968,000 for prior periods’ capitalized bond issue costs, which were previously reported as “Other Assets” on the Statements of Net Position. This reduction is shown as additional Interest Expense on the Statements of Revenues, Expenses and Changes in Net Position.

Effective for fiscal year 2014, the University and MU Health Care adopted GASB Statement No. 66, Technical Corrections – 2012, which intends to improve financial reporting by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statement No. 54 and Statement No. 62. Adoption of GASB Statement No. 66 had no effect on MU Health Care’s financial statements.

Effective for fiscal year 2014, the University adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment to GASB Statement No. 27, which enhances accounting and financial reporting by state and local governments for pensions and improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. The adoption of GASB Statement No. 68 will be recorded by the University and had no effect on MU Health Care’s financial statements.

In January 2013, GASB issued GASB Statement No. 69, Government Combinations and Disposals of Government Operations, which intends to improve financial reporting by establishing standards for reporting government combinations and disposals of government operations. The University and MU Health Care have not yet determined the effect that adoption of GASB Statement No. 69 will have on MU Health Care’s financial statements.

Effective for fiscal year 2014, the University and MU Health Care adopted GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, which intends to improve financial reporting by state and local governments that extend and receive nonexchange financial guarantees. Adoption of GASB Statement No. 70 had no effect on MU Health Care’s financial statements.

Effective for fiscal year 2013, MU Health Care adopted GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, which applies to service concession

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arrangements (SCAs) that are defined as public-private partnerships in which the public institution retains specific control criteria. Adoption of GASB Statement No. 60 had no effect on MU Health Care’s financial statements.

Effective for fiscal year 2013, MU Health Care adopted GASB Statement No. 61, The Financial Reporting Entity: Omnibus (an amendment of GASB Statements No. 14 and No. 34), which intends to improve financial reporting for a governmental financial reporting entity. The Statement amends the requirements of GASB Statement No. 14. Adoption of GASB Statement No. 61 had no effect on MU Health Care’s financial statements.

Effective for fiscal year 2013, the University and MU Health Care adopted GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, which addresses how to report elements of financial statements that are deferrals, and explains that net position is the residual of all other elements presented in a Statements of Net Position. Adoption of GASB Statement No. 63 had no effect on MU Health Care’s financial statements.

(m) Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation.

(2) Cash and Cash Equivalents

Custodial Credit Risk – Deposits

The custodial credit risk for deposits is the risk that in the event of bank failure, the University’s deposits may not be recovered. State law requires collateralization of all deposits with federal depository insurance, bonds and other obligations of the U.S. Treasury, U.S. Agencies, and instrumentalities of the State of Missouri; bonds of any city, county, school district, or special road district of the State of Missouri; bonds of any state; or a surety bond having an aggregate value at least equal to the amount of the deposits. The University’s cash deposits, including MU Health Care’s share, were fully insured or collateralized at June 30, 2014 and 2013.

(3) Investments

(a) Investments

The investment policies of the University are established by the Board. The policies ensure that the University funds are managed in accordance with Section 105.688 of the Revised Statutes of Missouri and with prudent investment practices. The use of external investment managers has been authorized by the Board. Substantially all cash and investments are managed centrally, as follows:

General Pool – The General Pool contains short-term University funds, including, but not limited to, cash and reserves, operating funds, bond funds, and plant funds. Subject to various limitations contained within the corresponding investment policy, the University’s internally managed component of the General Pool may be invested in the following instruments: U.S. Government securities; U.S. Government Agency securities; U.S. Government guaranteed securities; money

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market funds; certificates of deposit; repurchase agreements; commercial paper; and other similar short-term investment instruments of like or better quality and the externally managed component of the General Pool is allowed to invest in the following assets sectors: fixed income, absolute return, and risk parity strategies. As of June 30, 2014 and 2013, MU Health Care held investments of $361,147 and $332,848 in the General Pool including a portion, $120,398 and $107,829, respectively, which was allocated to risk parity strategies within the University’s General Pool.

Balanced Pool (Long-Term Funds) – The Balanced Pool, which is externally managed, is the primary investment vehicle for endowment funds. Subject to various limitations contained within the corresponding investment policy, the Balanced Pool is allowed to invest in the following asset sectors: U.S. and international equity, emerging markets debt and equity, absolute return strategies, private equity, real estate, global fixed income, high-yield fixed income, bank loans, and Treasury inflation-protected securities. As of June 30, 2014 and 2013, MU Health Care held investments of $620 and $483, respectively, on which actual earnings and market fluctuations were recorded.

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MU Health Care’s share of the University’s investments, by investment type, is as follows:

June 302014 2013

Debt securities:U.S. Treasury $ 23,661 $ 23,133 U.S. Agency 72,899 63,197 Asset-backed securities 4,450 19,296 Government – foreign 11,288 2,281 Corporate – domestic 30,480 23,562 Corporate – foreign 20,703 10,622

Equity securities:Domestic 8,709 9,498 Foreign 3,967 4,779

Commingled funds:Absolute return 6,609 6,547 Risk parity 122,366 107,829 Debt securities – global — 1 Debt securities – domestic 12,354 6,503 Debt securities – foreign 3,241 3,420 Equity securities – domestic 4,652 1,475 Equity securities – foreign 10,351 4,968 Equity securities – global 3,099 10,254 Real estate 427 585

Nonmarketable alternative investments:Real estate 2,106 2,197 Private equity 3,513 3,305

Other 2,833 2,444

Total investments 347,708 305,896

Money market funds 12,559 12,310 Commercial paper 1,896 9,818 Other 1,669 7,181

Total cash and cash equivalents 16,124 29,309

Total investments and cash and cashequivalents $ 363,832 $ 335,205

Total cash equivalents and investments include investments held by the University related to the $55,000 Amount due University (note 10). MU Health Care does not earn investment income on these funds based on the loan agreement.

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(b) Custodial Credit Risk

For investments, custodial credit risk is the risk that in the event of failure of the counterparty to a transaction, the University will not be able to recover the value of the investments held by an outside party. In accordance with its policy, the University minimizes custodial credit risk by establishing limitations on the types of instruments held with qualifying institutions. Repurchase agreements must be collateralized by U.S. Government issues and/or U.S. Government Agency issues. All University investments are insured or registered and are held by the University or an agent in its name.

(c) Concentration of Credit Risk

The concentration of credit risk is the risk associated with a lack of diversification, such as having substantial investments in a few individual issuers, thereby exposing the organization to greater risks resulting from adverse economic, political, regulatory, geographic, or credit developments. The investment policies for the General Pool and Balanced Pool all specify diversification requirements across asset sectors. The investment policy for the General Pool has specific single issuer limits in place for corporate bonds and commercial paper.

Excluding investments issued or guaranteed by the U.S. government, as well as investments in mutual funds and other pooled investments, as of June 30, 2014, of MU Health Care’s share of the University’s total cash and investments, 12.7% are issues of the Federal Home Loan Bank (FHLB). As of June 30, 2013, of MU Health Care’s share of the University’s total cash and investments, 8.8% are issues of the FHLB and 7.6% are issues of the Federal National Mortgage Association (FNMA).

(d) Credit Risk

Debt securities are subject to credit risk, which is the chance that an issuer will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make these payments will cause security prices to decline. These circumstances may arise due to a variety of factors such as financial weakness, bankruptcy, litigation, and/or adverse political developments. Certain debt securities, primarily obligations of the U.S. government or those explicitly guaranteed by the U.S. government, are not considered to have credit risk.

Nationally recognized statistical rating organizations, such as Moody’s and Standard & Poor’s (S&P), assign credit ratings to security issues and issuers that indicate a measure of potential credit risk to investors. Debt securities considered investment grade are those rated at least Baa by Moody’s and BBB by S&P. For General Pool investments, the following minimum credit ratings have been established to manage credit risk: minimum long-term rating of A or better by S&P, with minimum rating of A – 1/P – 1 for commercial paper and other short-term securities. For Balanced Pool investments, the respective investment policies allow a blend of different credit ratings subject to certain restrictions by asset sector. In all cases, disposition of securities whose ratings have been downgraded after purchase is generally left to the discretion of the respective investment manager after consideration of individual facts and circumstances.

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All holdings of commercial paper and variable rate demand notes were rated A – 1/P – 1 or better at June 30, 2014 and 2013, respectively. All holdings of money market funds were rated AAA at June 30, 2014 and 2013.

Based on investment ratings provided by Moody’s or S&P, the following represents MU Health Care’s share of the University’s investment exposure to credit risk:

June 302014 2013

U.S. Treasury Obligations $ 23,661 $ 23,133 U.S. Agency Obligations 72,899 63,197 Asset-backed/mortgage-backed securities:

Guaranteed by U.S. Agencies (12,397) 7,413 Aaa/AAA 230 383 Aa/AA 256 264 A/A 471 189 Baa/BBB 474 343 Ba/BB and lower 15,249 10,532 Unrated 167 172

Government – foreign:Aaa/AAA 124 295 Aa/AA 80 291 A/A 1,055 1,204 Baa/BBB 7,407 135 Ba/BB and lower 342 — Unrated 2,280 356

Corporate – domestic:Aaa/AAA 73 76 Aa/AA 191 11 A/A 595 152 Baa/BBB 3,777 2,145 Ba/BB and lower 20,586 15,262 Unrated 5,258 5,916

Corporate – foreign:Aaa/AAA 1,441 444 Aa/AA 2,896 271 A/A 3,434 1,059 Baa/BBB 3,765 2,844 Ba/BB and lower 5,565 4,372 Unrated 3,602 1,632

Total $ 163,481 $ 142,091

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(e) Interest Rate Risk

Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Debt securities with longer maturities are likely to be subject to more variability in their fair values as a result of future changes in interest rates. The University does not have a formal policy that addresses interest rate risk. Such risk is managed by each individual investment manager, as applicable.

The University has investments in asset-backed securities, which consist primarily of mortgage-backed securities guaranteed by U.S. agencies and corporate collateralized mortgage obligations. These securities are based on cash flows from principal and interest payments on the underlying securities. An asset-backed security may have repayments that vary significantly with changes in market interest rates.

At June 30, 2014 and 2013, the modified duration of MU Health Care’s share of the University’s investments is as follows:

June 302014 2013

Duration DurationBalance in years Balance in years

U.S. Treasury Obligations $ 23,661 8.3 $ 23,133 7.1 U.S. Agency Obligations 72,899 3.3 63,197 2.2 Asset–Backed Securities 4,450 6.8 19,296 6.1 Government – Foreign 11,288 5.8 2,281 7.1 Corporate – Domestic 30,480 4.2 23,562 3.9 Corporate – Foreign 20,703 5.3 10,622 4.4

$ 163,481 4.7 $ 142,091 4.0

(f) Foreign Exchange Risk

Foreign exchange risk is the risk that investments denominated in foreign currencies may lose value due to adverse fluctuations in the value of the U.S. dollar relative to foreign currencies. The University’s investment policy allows for exposure to non-U.S. dollar denominated equities and fixed income securities which may be fully or partially hedged using forward foreign currency contracts. As of June 30, 2014 and 2013, 5.9% and 5.1%, respectively, of MU Health Care’s share of the University’s total investments and cash equivalents were denominated in foreign currencies. MU Health Care’s share of the University’s forward foreign currency contracts in notional amounts totaled $14,355 and $15,021 at June 30, 2014 and 2013, respectively. These contracts are marked to market and the changes in their market value are recorded in investment income on the Statements of Revenues, Expenses, and Changes in Net Position.

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June 302014 2013

Debt securities:Euro $ 10,311 $ 4,040 Australian dollar 354 (174) Japanese yen 135 196 British pound sterling 2,676 2,406 Brazil real 4,810 267 Canadian dollar 21 136 Other 320 242

Total debt securities 18,627 7,113

Equity securities:Euro 228 379 Japanese yen 477 725 British pound sterling 562 858 Swiss franc 443 548 Australian dollar 127 129 Canadian dollar 54 43 Other 801 932

Total equity securities 2,692 3,614

Commingled funds:Various currency denominations:

Debt securities – foreign 3,241 3,419 Equity securities – foreign 10,351 4,968 Equity securities – global 3,099 10,253

Total commingled funds 16,691 18,640

Cash and cash equivalents:Euro 412 32 Hong Kong dollar — — Mexican new peso 187 12 Other 185 278

Total cash and cash equivalents 784 322 Total exposure to foreign exchange risk $ 38,794 $ 29,689

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(4) Capital Assets

Capital assets activity is summarized as follows:

2014Beginning Additions/ Ending

balance transfers Retirements balance

Capital assets, nondepreciable:Land $ 9,953 $ — $ 15 $ 9,938 Construction in progress 5,502 18,421 — 23,923

Total capital assets,nondepreciable 15,455 18,421 15 33,861

Capital assets, depreciable:Buildings and improvements 566,241 7,610 25,125 548,726 Infrastructure 15,330 7 684 14,653 Equipment 317,667 30,001 9,399 338,269

Total capital assets,depreciable 899,238 37,618 35,208 901,648

Less accumulated depreciation:Buildings and improvements 185,775 20,777 20,105 186,447 Infrastructure 2,940 657 522 3,075 Equipment 205,464 27,998 9,041 224,421

Total accumulateddepreciation 394,179 49,432 29,668 413,943

Total capital assets,depreciable, net 505,059 (11,814) 5,540 487,705

Total capital assets,net $ 520,514 $ 6,607 $ 5,555 $ 521,566

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June 30, 2014 and 2013


2013Beginning Additions/ Ending

balance transfers Retirements balance

Capital assets, nondepreciable:Land $ 9,953 $ — $ — $ 9,953 Construction in progress 113,683 (108,181) — 5,502

Total capital assets,nondepreciable 123,636 (108,181) — 15,455

Capital assets, depreciable:Buildings and improvements 395,364 170,920 43 566,241 Infrastructure 12,793 2,548 11 15,330 Equipment 289,251 41,218 12,802 317,667

Total capital assets,depreciable 697,408 214,686 12,856 899,238

Less accumulated depreciation:Buildings and improvements 169,527 16,251 3 185,775 Infrastructure 2,266 679 5 2,940 Equipment 193,524 24,516 12,576 205,464

Total accumulateddepreciation 365,317 41,446 12,584 394,179

Total capital assets,depreciable, net 332,091 173,240 272 505,059

Total capital assets,net $ 455,727 $ 65,059 $ 272 $ 520,514

During 2014, MU Health Care recognized a $2,186 impairment on the inpatient facilities at MRC. This is included as additional depreciation on the Statements of Revenues, Expenses and Changes in Net Position.

The estimated cost to complete construction in progress at June 30, 2014 is $75,097 of which $32,543 is available from unrestricted net assets and $1,381 is available from restricted gift funds. The remaining costs will be funded from $41,173 in bond proceeds. Included in capital assets is a building facility under a capital lease of $10,364, and related accumulated depreciation of $6,815 and $6,139 at June 30, 2014 and 2013, respectively.

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(5) Long-Term Debt Obligations

Long-term debt obligation activity is summarized as follows:

2014Beginning End of

of year Issuance Payments Defeasance Amortization year

2009 A and B $ 110,489 $ — $ (1,841) $ — $ — $ 108,648 2010A 78,712 — (1,564) — — 77,148 2012 126,017 — (5,556) — — 120,461 Plus unamortized premium/discounts 5,513 — — — (607) 4,906

Total debtobligations 320,731 $ — $ (8,961) $ — $ (607) 311,163

Less current portion 8,961 9,583

Long-term debtobligations $ 311,770 $ 301,580

2013

Beginning End ofof year Issuance Payments Defeasance Amortization year

2009 A and B $ 112,913 $ — $ (2,424) $ — $ — $ 110,489 2010A 80,217 — (1,505) — — 78,712 2012 133,019 — (7,002) — — 126,017 Plus unamortized premium/discounts 5,830 — — — (317) 5,513

Total debtobligations 331,979 $ — $ (10,931) $ — $ (317) 320,731

Less current portion 10,931 8,961

Long-term debtobligations $ 321,048 $ 311,770

The long-term debt obligations have contracted interest rate, of 3.85% to 4.97% and an average contracted interest rate of 4.31%. The final maturity of the long-term debt obligations is October 31, 2041.

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Future minimum maturities on long-term debt obligations as of June 30, 2014, for the next five fiscal years ending June 30, and beyond are as follows:

Principal Interest Total

2015 $ 9,583 $ 12,914 $ 22,497 2016 10,006 12,451 22,457 2017 10,416 11,973 22,389 2018 10,929 11,472 22,401 2019 11,555 10,947 22,502 2020–2024 68,116 45,885 114,001 2025–2029 80,958 28,640 109,598 2030–2034 41,627 16,400 58,027 2035–2039 50,556 7,536 58,092 2040–2042 12,511 499 13,010

Total $ 306,257 $ 158,717 $ 464,974

(6) Lease Obligations

MU Health Care leases various facilities and equipment through operating and capital leases. Facilities under capitalized leases are recorded at the present value of future minimum lease payments. Total rental expenses for operating leases for the years ended June 30, 2014 and 2013 were $2,447 and $2,075, respectively.

On September 30, 1999, MU Health Care entered into a capital lease obligation for a facility, which is used by Women’s and Children’s Hospital (WCH). Expenditures incurred on operating leases for rental payments are charged to current expenses.

Capital lease activity is summarized as follows:

2014Beginning of End of

year Payments year

Total capital lease obligation $ 5,919 $ 755 $ 5,164 Less current capital lease obligation 755 820

Long-term capital leaseobligation $ 5,164 $ 4,344

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June 30, 2014 and 2013


2013Beginning of End of

year Payments year

Total capital lease obligation $ 6,615 $ 696 $ 5,919 Less current capital lease obligation 696 755

Long-term capital leaseobligation $ 5,919 $ 5,164

The future minimum payments on all significant leases with initial or remaining terms of one year or more at June 30, 2014 are as follows:

Capital Operating

Fiscal year(s):2015 $ 1,563 $ 1,647 2016 1,563 1,133 2017 1,563 471 2018 1,563 16 2019 1,563 — 2020–2023 390 —

Total future minimum payments 8,205 $ 3,267

Less amount representing interest 3,041 Present value of future minimum lease payments $ 5,164

In addition to the above lease obligations, MU Health Care has outstanding commitments for the usage and ongoing support of its information technology environment. MU Health Care contracts for software usage and maintenance fees, as well as labor costs. As of June 30, 2014, this contracted commitment totaled $106,241 and will be paid in the following amounts: $18,041 in 2015, $18,583 in 2016, $19,140 in 2017, $19,714 in 2018, $20,306 in 2019, and $10,457 thereafter.

(7) Insurance and Other Commitments

(a) Malpractice

MU Health Care participates in the University’s Medical, Professional, and Patient General Liability Trust (the Trust), which was established by the Board effective July 1, 1978. Payments from the Trust are limited to the settlement of medical, professional, and patient general liability claims and expenses. The assets of the Trust and the related estimated liabilities have been recorded by the University as part of its unrestricted funds.

The amounts funded by MU Health Care are actuarially determined, based principally on previous claim experience, to provide for settlement of claims arising out of MU Health Care’s operations.

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The amounts contributed by MU Health Care to the Trust were $2,115 and $983 for the years ended June 30, 2014 and 2013, respectively, and are reflected as other expenses in the accompanying basic financial statements.

Currently, various claims are pending against the University; however, in the opinion of the University’s administration and its legal counsel, liabilities, if any, arising from these claims are adequately covered by the Trust. The settlement of these claims is not expected to have a material effect on MU Health Care’s liquidity, operations, and financial position.

(b) Other Health Care Matters

MU Health Care has reviewed potential federal health program reimbursement issues and is in process of self-disclosure for these matters. The estimated minimum likely exposure is $3,379 and is included in estimated third-party payor settlements on the Statements of Net Position. As the federal government could assess penalties or assert alternative theories or analyses concerning amounts of liability, the potential for additional exposure exists but cannot be estimated at this time, as these matters have not yet been resolved.

(c) Medical Resident FICA Refunds

In March 2010, the United States Internal Revenue Service (IRS) accepted the position that medical residents are excepted from FICA taxes based upon the “student exception” for tax periods ending before April 1, 2005 when new regulations became effective. In December 2010, the University of Missouri perfected its claims for the refund of taxes withheld for the relevant periods. During the year ended June 30, 2013, MU Health Care received $31,459 in refunds and related interest from the IRS. Of this amount, $14,694 was due to individual residents and medical care entities. The remaining $16,765 represents MU Health Care’s portion of the FICA refund and related interest, of which $9,863 had been reflected as a reduction of salaries, wages and benefits, or interest income, in prior years. For the year ended June 30, 2013, MU Health Care recorded an additional $6,706 in interest income and $226 in a reduction to salaries, wages, and benefits. As of June 30, 2014, there are no additional liabilities or receivables related to the FICA refund.

(d) Other

MU Health Care is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets; injuries to employees; natural disasters; and various medically related benefit programs for employees. They participate in the University’s plan, which funds these losses through a combination of self-insured retentions and commercially purchased insurance. The amount of self-insurance funds and commercial insurance maintained are based upon analysis of historical information and actuarial estimates. Settled claims have not exceeded commercial coverage in any of the past three fiscal years. MU Health Care is charged a premium annually from the University for such coverage.

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(8) Retirement Plan

(a) Defined Benefit Plan

All qualified employees of MU Health Care participate in the University of Missouri Retirement, Disability, and Death Benefits Plan (the Plan), a single employer defined benefit plan.

Full‐time employees vest in the Retirement Plan after five years of credited service and become eligible for benefits based on age and years of service. A vested employee who retires at age 65 or older is eligible for a lifetime annuity calculated at a certain rate times the credited service years times the compensation base (average compensation for the five highest consecutive salary years). The rate is 2.2% if the employee was hired before October 1, 2012, or 1.0% if the employee was hired after September 30, 2012. The Board may periodically approve increases to the benefits paid to existing pensioners. However, vested members who leave the University prior to eligibility for retirement are not eligible for these pension increases.

Vested employees who are at least age 55 and have 10 years or more of credited service or age 60 with at least five years of service may choose early retirement with a reduced benefit. However, if the employee retires at age 62 and has at least 25 years of credited service, the benefit is not reduced. Up to 30% of the retirement annuity can be taken in a lump sum payment. In addition, the standard annuity can be exchanged for an actuarially‐equivalent annuity selected from an array of options with joint and survivor, period certain, and guaranteed annual increase features.

Vested employees who terminate prior to retirement eligibility may elect to transfer the actuarial equivalent of their benefit to an Individual Retirement Account or into another employer’s qualified plan that accepts such rollovers. The actuarial equivalent may also be taken in the form of a lump sum payment. In addition, the Retirement Plan allows vested employees who become disabled to continue accruing service credit until they retire. It also provides a preretirement death benefit for vested employees. The Retirement Plan provides a minimum value feature for vested employees who terminate or retire. The minimum value is calculated as the actuarial equivalent of 5% of the employee’s eligible compensation invested at 7.5% per credited service year or the regularly calculated benefit.

(b) Defined Contribution Plan

Employees hired after September 30, 2012 participate in a single employer, defined contribution plan. Each year the University contributes 2% of each employee’s eligible salary to a 401(a) plan. Employees are able to contribute to a 457(b) plan. The University will match up to 3% of that 457(b) plan contribution with those funds going into the 401(a) plan. Employees are immediately 100% vested in their contributions. The University’s base contribution and matching contributions vest following three years of consecutive or nonconsecutive service.

(c) Contributions

Contributions to the retirement plan are equal to the actuarially determined employer contribution requirement (ARC). The ARC for those employees hired before October 1, 2012 averaged 10.8%

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June 30, 2014 and 2013


and 8.9% of covered payroll for the years ending June 30, 2014 and 2013, respectively. The ARC for those employees hired after September 30, 2012 averaged 6.8% and 4.9% of covered payroll for the years ended June 30, 2014 and 2013, respectively. Employees are required to contribute 1% of their salary up to $50,000 in a calendar year and 2% of their salary in excess of $50,000. An actuarial valuation of the Plan is performed annually and the contribution rate is updated at the beginning of the fiscal year on July 1, to reflect the actuarially determined funding requirement from the most recent valuation, as of the preceding October 1. This actuarial valuation reflects the adoption of any Retirement Plan amendments during the previous fiscal year.

MU Health Care’s contributions to the Plan are included in expenses within the Statements of Revenues, Expenses, and Changes in Net Position. Contributions to the Plan during the years ended June 30, 2014, 2013, and 2012, based on actuarially determined contribution rates, totaled $19,702, $16,490, and $13,250, respectively.

(9) Other Postemployment Benefits

In addition to the pension benefits described in note 8, MU Health Care participates in the University’s Other Postemployment Benefits (OPEB) Plan, which is a single-employer, defined benefit postemployment plan. The OPEB Plan provides medical, dental, life insurance, and long-term disability benefits to claimants who were vested in the University’s retirement plan at the time their disability began and vested employees who retire directly from MU Health Care after attaining age 55 and before reaching age 60 with 10 years or more of service, or who retire after attaining age 60 with five or more years of service. Section 172.300 of the Revised Statutes of Missouri gives the Board sole authority and discretion to determine the terms and conditions governing the postemployment benefits to which employees are entitled.

The University maintains an OPEB Trust Fund, the assets of which are irrevocable and legally protected from creditors and dedicated to providing postemployment benefits in accordance with terms of the Plan. Postemployment benefits, other than long-term disability, were previously funded on a current basis, and expenses were recorded on a pay-as-you-go basis. Additional information regarding the University’s postemployment benefits plan is disclosed in the University’s annual financial report, which can be obtained at the Office of Finance and Administration, 215 University Hall, Columbia, Missouri 65211.

As of June 30, 2014 and 2013, 955 and 887 members, respectively, receiving postemployment benefits were formerly employees of MU Health Care. Individual member’s contributions depend on the medical, dental, and life insurance coverage options they have chosen. For fiscal year 2014, all University members contributed $14,130,110 or approximately 47.6% of the total premiums. MU Health Care paid the University $2,946 and $2,683 for the years ended June 30, 2014 and 2013, respectively. MU Health Care assumes no liability for postemployment benefits provided by the University other than its annual required contributions.

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June 30, 2014 and 2013


(10) Related-Party Transactions

MU Health Care and the other divisions of the University provide a variety of support services to each other, and these transactions are recorded as revenues and expenses in the financial statements. The cost of these services is allocated to the user on methods, which vary according to the service being furnished. These services are paid for by inter-University payments of funds, which are net reductions of operating expenses of the unit providing the service, and are included in the operating costs of the unit receiving the service. Administrative and purchased services paid for by the University and allocated to MU Health Care during the years ended June 30, 2014 and 2013 were $70,765 and $70,859, respectively. Administrative and purchased services paid for by MU Health Care and allocated to the University during the years ended June 30, 2014 and 2013 were $10,197 and $9,580, respectively, and are included as a reduction of other expenses in the accompanying basic financial statements.

MU Health Care obtained $50,000 of investments as a loan from the University in fiscal year 2001. The University committed to loan future funds if the days cash on hand goes below 85 days. The loan is to be repaid upon demand in whole or in part at such time that day’s cash on hand of MU Health Care is not less than 85 days. An additional $5,000 loan was made accordingly in fiscal year 2002. Based upon the loan agreement, MU Health Care does not pay interest expense on the loan or receive interest income on the related assets. There were no additions to or repayments on the loan in 2014 or 2013. Management does not anticipate repayment of the loan in fiscal year 2015.

(11) Transfers

In addition to services purchased from the divisions of the University, MU Health Care also provides support to certain of these divisions through transfers. These transfers were $6,142 and $8,386 for the years ended June 30, 2014 and 2013, respectively, and principally provide funding for recruitments and operational support to divisions. The transfer includes $4,740 and $8,450 for the years ended June 30, 2014 and 2013, to the School of Medicine in additional support in accordance with a performance based support agreement, the components of which are reviewed and agreed to annually.

(12) Subsequent Event

On August 11, 2014, MU Health Care announced the closure of its long-term acute care facility, Missouri Rehabilitation Center (MRC), in Mount Vernon, Missouri. Inpatient services will continue through October 31, 2014, with certain outpatient services continuing through December 31, 2014. MU Health Care will receive a final appropriation of $5,014 from the State of Missouri related to the normal operations of MRC during fiscal year 2015.

MU Health Care has entered into an agreement to sell the facility to the City of Mount Vernon. MU Health Care will recognize an estimated loss on the sale of $7,783.

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